Long Association Task Force Marisa Orbea Task Force

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Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting July 7 -9,

Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting July 7 -9, 2014 New York Page 1

Long Association Background • From Sept. and Dec. 2013 meetings, IESBA agreed: ‒ Monitor

Long Association Background • From Sept. and Dec. 2013 meetings, IESBA agreed: ‒ Monitor regulatory developments re: mandatory tendering and rotation legislation ‒ Strengthen overall framework of 290. 150 ‒ Maintain 7 yr. time-on period for KAPs on audits of PIEs ‒ Reconsider 2 yr. cooling-off period for KAPs ‒ Mandatory rotation not required for non-PIEs or non-KAPs on PIEs Page 2

Long Association Background • IESBA requested TF to consider: – – Longer cooling-off for

Long Association Background • IESBA requested TF to consider: – – Longer cooling-off for Key Audit Partners (KAPs) on PIEs Nature of permissible roles during cooling-off Adding additional guidance in general framework Providing guidance on communication with those charged with governance (TCWG) on rotation issues Page 3

Long Association Length of Cooling-Off Period - Background • TF presented 2 proposals in

Long Association Length of Cooling-Off Period - Background • TF presented 2 proposals in Dec. 2013 IESBA meeting: – 3 yr. cooling-off for all KAPs on audit of all PIEs; or – 5 yr. cooling-off for the engagement partner on audit of listed company • Informal Board poll: Majority supported 5 yr. cooling-off for engagement partner with 2 or 3 yr. cooling-off for other KAPs • TF requested to consider bifurcation of cooling-off period to focus on engagement partner Page 4

Long Association Length of Cooling-Off Period - Background • March 2014 CAG meeting –

Long Association Length of Cooling-Off Period - Background • March 2014 CAG meeting – all CAG Representatives that expressed a view indicated a preference for a uniform cooling-off period for all KAPs – confirmed that a cooling-off period of greater than two years was preferable but did not indicate a view on the ideal cooling-off period Page 5

Long Association Length of Cooling-Off Period - Background • TF recommendation at April 2013

Long Association Length of Cooling-Off Period - Background • TF recommendation at April 2013 IESBA meeting: – Extend cooling-off period to five years for engagement partner on listed company audits – Other KAPS to remain the same (2 year cooling-off) • Majority of Board view that there was little or no justification for distinguishing listed companies from other PIEs • TF has made changes to the draft provisions to apply cooling off period to engagement partner on all PIEs Page 6

Long Association Length of Cooling-Off Period – Stakeholder views • Lack of support for

Long Association Length of Cooling-Off Period – Stakeholder views • Lack of support for change from SMP Committee • May 2104 NSS meeting participants supported extended cooling-off period for engagement partner for all PIEs, however consider it should also apply to the EQCR • June 2014 CAG meeting: – Majority of participants supported extension of cooling off period for KAPs on PIES, not just listed companies – Split views whether extended cooling-off should apply to engagement partner only, or also EQCR due to importance of role Page 7

Long Association Length of Cooling-Off Period - Recommendation • TF recommends five year-cooling-off period

Long Association Length of Cooling-Off Period - Recommendation • TF recommends five year-cooling-off period for the engagement partner on the audit of a PIE • The TF does not recommend also applying the extended cooling-off period to the EQCR – the EQCR role is just as important however the more significant familiarity threats are created with the engagement partner – More effectively deals with perception issues given engagement partner’s unique role on the audit – Ensures there is an effective break in the engagement partner’s influence over the engagement. Page 8

Long Association Length of Cooling-Off Period - Questions • Do Board member have any

Long Association Length of Cooling-Off Period - Questions • Do Board member have any comments in respect to stakeholder feedback received to date? • Do Board members continue to support the proposal that the 5 year cooling off period should apply to the engagement partner on all PIES? Page 9

Long Association Activities during Cooling-Off - Background • The TF proposed that during cooling-off,

Long Association Activities during Cooling-Off - Background • The TF proposed that during cooling-off, a KAP could not: • be a member of the engagement team • consult on technical or industry specific issues • be the “client relationship” partner • provide non-audit services • The TF also proposed that if the cooling-off period was extended to five years for engagement partner, that certain technical consultation could be performed by the engagement partner after a period of two years Page 10

Long Association Activities during Cooling-Off - Background • Majority of Board agreed with proposals

Long Association Activities during Cooling-Off - Background • Majority of Board agreed with proposals • However consensus was not reached on the issue of provision of non-audit services • TF proposals at April 2014 Board teleconference – Replace ban on non-audit services with principle that activities should be prohibited if influence the audit or have significant or ongoing interaction with management / TCWG – Majority of Board supported the proposal Page 11

Long Association Activities during Cooling-Off – Stakeholder views • Lack of support from SMP

Long Association Activities during Cooling-Off – Stakeholder views • Lack of support from SMP Committee for proscribing further restrictions – Rationale for relaxing restrictions after 2 years for engagement partner unclear • May 2104 NSS meeting participants did not consider there should be any permissible interaction during cooling-off • June 2014 CAG meeting: – Majority of participants supported the proposals as reasonable – Some comments supporting no involvement in audit / relaxation Page 12

Long Association Activities during Cooling-Off - Recommendation • TF continues to recommend proposals presented

Long Association Activities during Cooling-Off - Recommendation • TF continues to recommend proposals presented at April 2014 Board teleconference • Further changes made by TF to deal with comments from Board regarding: – Not prohibiting individual going into leadership role – Inconsistency of proposed wording with restrictions in other bullet points Page 13

Long Association Activities during Cooling-Off - Question • Does the Board agree with the

Long Association Activities during Cooling-Off - Question • Does the Board agree with the revised for the activities that a KAP may or may not undertake during the coolingoff period? Page 14

Long Association Strengthening of Overall Framework • At the March 2014 CAG meeting and

Long Association Strengthening of Overall Framework • At the March 2014 CAG meeting and April 2014 Board meeting, some members commented on minimum coolingoff period of one year in the general provisions: – May be too prescriptive – Principles should be applied to get to right outcome – Confusing to have requirements in general principles • TF has amended the provisions to require the firm to determine a period of sufficient duration to eliminate or reduce threats. Page 15

Long Association Involvement of TCWG • TF recommended that concurrence from TCWG be obtained

Long Association Involvement of TCWG • TF recommended that concurrence from TCWG be obtained with respect to the application of 290. 153 and 290. 154. • Comments from Board member regarding the use of the word “concurrence” • TF recommends maintaining the use of “concurrence” as” – consistent with wording in breaches provisions – means agreement whether orally or in writing Page 16

Long Association Section 291 • Corresponding changes made to 291 • Some feedback from

Long Association Section 291 • Corresponding changes made to 291 • Some feedback from Board member that section 291 should recognize the difference between audit/review engagements and other assurance engagements • TF has proposed changes to reflect the discussion: – Clarify that threats from long association arise from recurring engagements – Nature of assurance engagement is first factor to consider Page 17